Hess to shed gas stations

Company plans to sell its stations, but area consumers might not see much change.

Hess station on Hanover Blvd. in Allentown on Tuesday. Hess Corp.’s… (DENISE SANCHEZ, THE MORNING…)

March 05, 2013|By Spencer Soper and Sam Kennedy, Of The Morning Call

Hess is among the most prominent gasoline brands in the Lehigh Valley, with 16 stations in the area, including a number at busy intersections such as Airport Road and Union Boulevard in Allentown and Route 22 and Schoenersville Road in Bethlehem.

So Hess Corp.'s announcement Monday that it plans to sell its retail gasoline business over the next two years could bring major changes for Lehigh Valley consumers. Or they may not notice a thing.

One possibility is that a company buys Hess's gas stations and continues to operate them under the strong brand name. Another is that a competing retail gasoline business buys Hess not for its name, but for its strategically placed properties. Hess owns more than 1,300 gas stations in 16 eastern states, providing an aggressive expansion opportunity for a smaller, regional company to play big.

Patrick DeHaan, a senior petroleum analyst for GasBuddy.com, described Hess's retail gas business as healthy and predicted the company would have little trouble finding new owners for most of its stations.

"I'm sure they'll sell the brand," meaning the stations would retain the Hess name, DeHaan said. "Hess is a pretty strong brand. I'd be surprised if they closed a lot of them."

That point was reinforced by Hess spokesman Denny Moynihan, who said the company has no plans to close any stores.

"It's business as usual at all of our Hess retail stores," Moynihan said. "The Hess brand is a strong and valuable brand that will live long into the future."

Hess, which is known as much for its green signs and brand trucks it sells around the holidays, has about 14,700 employees, about half of whom work at the stations. Headquartered in New York, Hess has 102 gas stations in Pennsylvania, all but two of which are owned directly by Hess.

Hess is a major player in the Valley's retail gasoline market. It has more Valley gas stations than Wawa, and closely trails national gasoline brands such as Sunoco, Shell and ExxonMobil in its number of local stations.

The Valley — where the average commuter spends more time driving to work than the average Pennsylvanian or American, according to the U.S. Census — is an attractive market for gas stations.

If stations are sold, potential buyers could include local competitors such Wawa and Sheetz, which are known as much for their coffee and hoagies as for their gasoline pumps. Neither of those companies responded to inquiries from The Morning Call.

Hess and Wawa engaged in a month-long gasoline price war here in the summer of 2007, with both stations dropping prices by nearly $1 below state averages. The companies own several stations in close proximity, and their price war resulted in large crowds and traffic jams at their stations.

Lehigh Gas Partners of Allentown is another potential buyer. The company owns or leases 500 stations in Pennsylvania, Florida, Ohio, New Jersey, New York, Massachusetts, New Hampshire, Maine and Kentucky.

In December, Lehigh Gas — the Lehigh Valley's newest publicly traded company — bought 69 gas station convenience store properties in Florida and the Scranton-Wilkes-Barre area. It paid $71.5 million for the properties, which included Chevron, ExxonMobil and Valero-branded stations.

Lehigh Gas did not respond to a request for comment Tuesday.

CEO John Hess said his plans, which also include shedding other units and focusing on oil exploration and production, aren't a response to criticism from activist shareholder Paul Singer's Elliott Management Corp.

Singer's Elliott Management said Hess is doing "the least possible to maintain the status quo." The New York-based hedge fund acquired a 4 percent stake and in January began pressing for asset sales and changes to the company's board. Hess has rejected Elliott Management's proposed board members and dismissed calls to split U.S. onshore and offshore production, saying it ignores credit risk, taxes and the company's real value.

"The decisions we made have been carefully structured, and really thought out, and are not a response to an activist," John Hess said. "This was the culmination and end point of us focusing on exploration and production more."

Exploration and production accounted for 91 percent of Hess profit last year, according to data compiled by Bloomberg.

The changes announced Monday are part of a continued effort to strip assets from the company, formed in 1933 by John Hess's father, Leon, who also owned National Football League's New York Jets. Hess announced in January that it would close its last refinery and seek buyers for 19 oil-storage terminals to become "predominantly" a crude exploration and production company.

"Management clearly is accelerating the changes rather than digging in its heels and fighting with its newest shareholders," Roger Read, a Houston-based analyst for Wells Fargo Securities LLC, said in a note to clients. "We applaud the changes."

Hess also plans to boost shareholder value by buying back as much as $4 billion in stock and more than doubling the annual dividend to $1 a share, John Hess told shareholders in a letter filed with the U.S. Securities and Exchange Commission Monday.

The proposals are "part of a calculated move to create a dynamic where he avoids taking larger actions," John Pike, a senior portfolio manager at Elliott Management said in a telephone interview.

Hess expects to complete the divestitures by the end of 2014, Chief Financial Officer John Rielly said. Proceeds will be used first to pay off $2.5 billion of debt, build a $1 billion cash reserve and fund planned capital projects, he said. Restructuring costs will be incurred in 2014 and aren't yet estimated, he said.